Barack Obama (D)
WASHINGTON (Legal Newsline)-Beleaguered homeowners received a powerful boost when President-elect Barack Obama said confronting the housing crisis will be one of his first orders of business upon taking office in January.
During a wide-ranging interview with the television program "60 Minutes," Obama re-asserted the need to help people save their homes.
"We've got to set up a negotiation between banks and borrowers so that people can stay in their homes," the president-elect said. "That is going to have an impact on the economy as a whole. And, you know, one thing I'm determined is that if we don't have a clear focused program for homeowners by the time I take office, we will after I take office."
Congress is expected to introduce legislation with the backing of the Democratic Party that would enact a 120-day moratorium on foreclosures, a policy urged by advocacy groups for months.
Despite legislative efforts in more than a dozen states, the $700 billion Congressional bailout and legal action from state attorneys general, foreclosure activity continued to rise in October, the 25th straight month that it has risen over the previous year, according to data provided by RealtyTrak inc.
On Friday, the Federal Deposit Insurance Corp. issued a loss-sharing proposal that could kick-start a systematic approach to modifying troubled loans. The proposal is based on the model FDIC used after it seized control of IndyMac, which FDIC Chairwoman Sheila Bair told Congress had already helped more than 3,000 homeowners reduce their payments and avoid foreclosure.
The plan would reduce payments by a combination of interest-rate reduction, principle reduction and the term extension. Federal funds could be used to buffer these losses, as opposed to the wholesale purchase of loans, according to a statement issued by the FDIC.
The program could work with 4.4 million troubled loans, resulting in half of the loans being modified, the report states.
The Greenlining Institute, an Oakland, Calif.-based advocacy group that helped start the foreclosure freeze movement, believes continued political pressure is essential in establishing a strong, consistent plan that will turn the tide of foreclosures across the country, according to general counsel Robert Gnaizda.
Gnaizda is in Washington D.C. this week meeting with FDIC's Bair, Speaker of the House Nancy Pelosi, D-Calif., and House Finance Chairman Barney Frank, D-Mass.
Despite recent announcements from lenders like JP Morgan Chase and Citibank that they would begin working with homeowners to modify loans, Gnaizda believes hedge fund investors that own many of these troubled mortgage securities will block the banks from modifying loans.
"Greenlining is quite concerned," Gnaizda told Legal Newsline, "that despite its ambitious rhetoric, these banks may be incapable of carrying these plans out. There is considerable question if Citigroup can remain a viable financial institution of significance by the middle of next year."
But the California attorney general's office told Legal Newsline on Tuesday that the JP Morgan Chase and Citibank are following the successful lead of the state's settlement with Countrywide Financial Corp.
"We have the investors on board," Diehl said, "so we have a program that is going to save homes... The program is being lauded nationally and followed by other lenders as witnessed by recent announcements from JP Morgan Chase and Citibank."
Under the terms of the $8.68 billion settlement, Countrywide will provide hundreds of loan counselors to work with troubled homeowners on Dec.1. Citibank said it too will have loan counselors ready to try to modify loans and reduce foreclosures, in an announcement the company made last week.
Gnaizda said he'd like to see an even simpler approach adopted.
"All of these financial institutions should cut back on bonuses and stock options of its top executives and use those funds for loan medications," Gnaizda said.
To illustrate his point Gnaizda said recent reports of the five largest investment banking firms on Wall Street paid billions in such bonuses just last year, and one company paid more than $200 million to just its top three executives.
"It would be a considerable pool of money," Gnaizda said.